Capped-rate mortgages stage minor comeback
There are fewer capped rate mortgages than there were five years ago, but they are making a comeback.
Rising house prices and interest rates mean that mortgage lenders have pulled many products from the market as customers' demands change, and capped-rate mortgages are among those that have been hit.
Capped rate mortgages allow people to benefit from interest rate falls, but guarantee that your interest rate will not rise above a certain level for a set period (typically two years).
However, with experts thinking interest rates are either at or near their peak - and could fall considerably over the next two years - mortgage lenders have been reluctant to offer this sort of mortgage.
"As house prices continue to rise and buyers struggle to climb on to the housing ladder, the mortgage market has needed to become very dynamic," said Julia Harris, mortgage analyst at money search engine Moneyfacts.co.uk.
"Six months ago capped rate deals had almost vanished, with only four products available compared with 38 on offer five years ago.
"As expected in a rising rate economy their popularity has grown, but still there are only 11 products to choose from, offered by Abbey, Coventry BS, Godiva Mortgages, Hinckley & Rugby BS, Kent Reliance BS, Marsden BS, Skipton BS and Woolwich."
Capped-rate mortgages on offer are currently charging between 5.68 per cent and 6.29 per cent, with deals ranging between two and five years, carrying arrangement fees between £495 and £999.
Four of the products already charge their capped rate, with the others charging between 0.10 per cent and 0.44 per cent less than their caps.
Capped-rate mortgages are currently charging 5.78 per cent on average - this is half a per cent higher than many tracker mortgages and more than many fixed-rate deals.
"Capped rates have lost their appeal; many people now seek protection against rate rises but at the same time demand the most competitive rate today," Ms Harris said.
"Many consumers' finances are now so tight that they simply cannot afford to take on a higher interest rate with the hope of benefiting from any falls or take the risk of the rate rising to the capped level."
But that does not mean capped-rate deals are finished.
"Capped deals will come into their own if rates are expected to fall in the short term or in times of extreme uncertainty," she noted.
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